Design Service Charges

[Kaustubh Karandikar]

XYZ exported goods without payment of GST to PQR, USA. The product design for the same was made by XYZ as per the requirement of PQR and charges for the same was separately recovered from PQR by issuing a service invoice as ‘Design Service Charges’. Is XYZ required to pay GST on the amount recovered from PQR?

[KASTURI SETHI]

In my view, XYZ is not required to pay GST on the amount of design service charges inasmuch as these charges have nexus with the goods exported. These charges are integrated with the exported goods. (though charged separately) .The burden of proof regarding the nexus is cast upon the manufacturer-exporter.

[Shilpi Jain]

Further, even if it is an independent supply, the design services would also be an export of service.

[Ganeshan Kalyani]

I agree with the view of both the experts.

AI Summary

GST on design services: charges tied to exported goods may be treated as integrated supply, not taxable. GST liability on separately invoiced design charges hinges on their characterisation: where the charges have nexus with and are integrated into exported goods, they are treated as part of the export and not subject to GST, with the burden of proof on the manufacturer exporter; alternatively, if the design is an independent supply, it may qualify as an export of service to the foreign recipient.